NYSE, NASDAQ, TSX, and others cancel some trades... SEC launches investigation

If you thought the stock market plunge on Thursday was weird, well, things got even more bizarre when some of the leading stock exchanges, such as NYSE, NASDAQ, and TSX (in Canada) cancelled some of the trades. The SEC has apparently also started an investigation.

I'm just a newbie that has been following the markets for a few years but my impression is that it is rare for an exchange to roll back trades. It is even rarer when a trade is rolled back with no errors (NYSE and NASDAQ have indicated there were no computer malfunction or other errors on their end.)


I find it hard to believe that rogue trades can impact the capital markets so much (BTW, Citigroup has denied that any of its employees played a role in this—there was a rumour that a Citigroup employee punched in 'billions' instead of 'millions'.) It almost feels like there is a big piece missing from this puzzle. The fact that the SEC is investigating lends credence to this view. Stock markets have crashed in the past and the SEC doesn't generally start an investigation over a collapse.

What happened is a horrible thing and certainly doesn't instill much confidence in stock markets. How could you have mega-caps like P&G (ticker: PG) marked down so easily? How can anyone be confident in ETFs if the Russell 1000 ETF (ticker: IWD) drops from $60 to $0.075?

Something really serious must have happened because it is unusual, not to mention very dangerous, for an exchange to roll back trades. I say dangerous because market participants are acting on prices and they may take positions based on what they see. Investors could be losing millions of dollars either buying or selling, and reversing a trade can cause losses to accrue to one party or another.


I hope the SEC gets to the bottom of this... I have a feeling that some of the senior management at exchanges like NYSE will be shown the door by the end of this year. Something looks very fishy here. The exchanges deny that there is were any errors yet they roll back trades...

Comments

  1. Kohti taloudellista riippumattomuuttaMay 8, 2010 at 9:59 AM

    I bought IWV 1000 pieces 2$ each. Now they are cancelling my buy? Is there anything I can do?

    ReplyDelete
  2. SivaramMay 9, 2010 at 6:11 PM

    I don't know... not sure what the legal terms of trades on exchanges are... best bet is to wait and see if any class action lawsuits are launched against the exchanges and then join that.

    If your trade didn't go through on the exchange, you probably have no legal recourse. But if it did cross the exchange, it remains to be seen if the exchange can roll back the trade at will without any reasoning.


    This is a really bizarre scenario and I think there are going to be some legal issues that need to be settled. At a minimum, the SEC and OSC/ASC/etc (in Canada) may provide judgement on future policies.

    ReplyDelete
  3. Kohti taloudellista riippumattomuuttaMay 13, 2010 at 1:38 PM

    Yes, my trade did go through. I even called the broker by phone to get a confirmation. The stocks also appeared to my portfolio but disappeared on tuesday. I got email from my broker last monday stating that the trade was cancelled.

    I live in Finland so I don't know if there is any chance for me to join any class action lawsuit in the states. I guess I just need to wait and see right now how things are going to end up. Right now it doesn't look good... :(

    ReplyDelete
  4. Sivaram VelauthapillaiMay 13, 2010 at 2:28 PM

    oh :(  ... yeah... that doesn't look good... I think trades are only settled 3 days after they are placed (not 100% sure on this) so the legal case may not be in your favour. I think if they cancelled it well after 3 days, it'll be an interesting situation.

    Unfortunately, you probably won't get back your shares but I don't think we have seen the end of this situation. What happened is very unusual and I have a feeling that something will come out...

    ReplyDelete

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